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Edexcel A-Level

Business

Theme 1

marketing & people

Study book

Authors:

Mike Mills

Graham Prior

Jim Riley

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Marketing

1.1 meeting Customer needs

1.1.1 The Market Page 3-7

1.1.2 market research Page 8-11

1.1.3 market positioning Page 12-14

1.2 market

1.2.1 Demand Page 15-16

1.2.2 Supply Page 17-18

1.2.3 markets Page 18-20

1.2.4 PRICE ELASTICITY OF DEMAND Page 21-23 1.2.5 Income ELASTICITY OF DEMAND Page 24-26 1.3 marketing mix and strategy

1.3.1 PRODUCT / SERVICE DESIGN Page 26-27

1.3.2 BRANDING AND PROMOTION Page 28-31

1.3.3 PRICING STRATEGIES Page 32-34

1.3.4 DISTRIBUTION Page 35-37

1.3.5 MARKETING STRATEGY Page 38-41

People

1.4 MANAGING PEOPLE

1.4.1 APPROACHES TO STAFFING Page 42-45

1.4.2 RECRUITMENT, SELECTION AND TRAINING Page 46-49

1.4.3 ORGANISATIONAL DESIGN Page 50-54

1.4.4 MOTIVATION IN THEORY AND PRACTICE Page 54-58

1.4.5 LEADERSHIP Page 59-60

1.4.4 MOTIVATION IN THEORY AND PRACTICE Page 54-58

1.5 ENTREPRENEURS AND LEADERS

1.5.1 ROLE OF AN ENTREPRENEUR Page 61-63

1.5.2 ENTREPRENEURIAL MOTIVES AND CHARACTERISTICS Page 64

1.5.3 BUSINESS OBJECTIVES Page 65-66

1.5.4 FORMS OF BUSINESS Page 66-69

1.5.5 BUSINESS CHOICES Page 70

1.5.6 MOVING FROM ENTREPRENEUR TO LEADER Page 71

CONTENTS

About this study book

The tutor2u Edexcel A-Level Business Study Book provides a comprehensive set of essential study notes on Theme 1 (Marketing & People) for Edexcel A-Level Business.

We've broken down each section into:

• What you need to know

• Complete, concise notes on each topic

• Exam gold - advice from experienced examiners about common student misconceptions and what to focus on in your revision

Make this Study Book your own. Highlight key points. Add your own comments and examples to make the notes invaluable for your exam revision.

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Qualitative Market Research

• Based on opinions, attitudes, beliefs and intentions

• Answers research questions such as “Why”? “Would? or “How?”

• Aims to understand why customers behave in a certain way or how they may respond to a new product or service • Focus groups and interviews are common methods used to collect qualitative data

Advantages

Advantages

Disadvantages

Disadvantages

• Essential for important new product development

and launches

• Provides crucial insights into consumer behaviour

• An effective way for testing elements of the

marketing mix

• Even a relatively small sample size can provide

useful research insights if it is representative

• Using sampling before making marketing decisions

can reduce risk and costs

• Flexible and relatively quick

• Expensive to collect and analyse often requiring

specialist research skills

• Based around opinions and there is always a risk

that the sample is not representative

• If the sample is unrepresentative of the population,

this can lead to incorrect conclusions and decisions

• Risk of interviewer, question and respondent bias

• Less useful in dynamic markets where customer

tastes and preferences change frequently

Exam GoldIn your exam, you may be required to assess why a business is using quantitative or qualitative data, for example, assessing why a business has chosen to use quantitative research. This would require you to write a balanced response. Balance could be achieved by looking at the benefits of using qualitative data and then looking at the limitations, or by looking at the benefits of qualitative data and then look at how and why methods of quantitative data might be more useful.

Limitations of market research, sample size and bias

Sampling involves the gathering of data from a selection of respondents, the results of which should be representative of the population (e.g. target market) as a whole.

Sampling is widely used in market research, and it can provide statistically valid insights into the profile of the overall population (e.g. market) being analysed.

With any sampling method, there is a risk of bias. Bias is where the sample is not representative of the population. Common examples of bias include interviewer bias, question bias and respondent bias.

For example, the way an interviewer asks questions could influence the answers that respondents give. The questions on a survey may be written to elicit a particular response and respondents may not necessarily tell the truth when answering questions, for example, exaggerating their level of income. This can be a key limitation of market research.

Use of ICT to support market research

The use of ICT is now commonplace and essential in market research:

• The capabilities of modern business IT has transformed market research

• Now relatively easy to learn about consumer preferences and buying habits by mining massive sets of quantitative data

• Complex algorithms can uncover patterns and correlations that enable more effective marketing Websites

Websites can be a valuable source of secondary research, especially websites dedicated to the provision of market research data such as Statista. Company websites are also a useful source of market research data; for example, a small business can look at local competitor websites to get an indication of products sold, pricing and promotion.

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What happens to market equilibrium when supply increases?

Below is another example to illustrate what happens to the market equilibrium when supply increases. The demand and supply of coffee (beans) in a local market is shown in the table below. The original equilibrium price is $30.

If market supply increases by 900 kg at each price, then the new equilibrium price will be $25 with 3,500 kg bought and sold. This change in market equilibrium is illustrated below.

You need to be able to demonstrate the following:

Price per kg Quantity Demanded (kg) (1) Quantity Supplied (kg) Quantity Supplied (kg) (2)

$40 2,000 3,800 4,700 $35 2,500 3,400 4,300 $30 3,000 3,000 3,900 $25 3,500 2,600 3,500 $20 $15 4,000 2,200 3,100 4,500 1,800 2,700

An outward shift of market suppy leads to a fall in

equilibrium price and an expansion of market demand

Market Supply (1) Market Demand (1) Market Supply (2) Price of coffee P1 P2 Q2 Quantity supplied Q1

The drawing and interpretation of supply and demand diagrams to show the causes and

consequences of price changes

An increase/rise in demand A decrease/fall in demand An increase/rise in supply A decrease/fall in supply

This will result in the demand curve shifting outward (to the right). This results in a shortage at the current price, therefore, the price and equilibrium quantity will rise/increase

This will result in the demand curve shifting inward (to the left). This results in a surplus at the current price, therefore, the price and equilibrium quantity will fall/decrease

This will result in the supply curve shifting outward (to the right). This results in a surplus at the current price, therefore, the equilibrium quantity will increase, but the equilibrium price will fall

This will result in the supply curve shifting inward (to the left). This results in a shortage at the current price, therefore, the price and equilibrium quantity will decrease, but the equilibrium price will rise

Exam Gold In your exam, you may be required to draw and interpret a supply and demand diagram to show how supply and demand interact to give an equilibrium price. This has previously taken the form of a 4 mark question.

Exam Gold When drawing supply and demand diagrams, remember to ACE them. That means to remember to label the Axes, Curves and Equilibrium points. A common student error when drawing supply and demand diagrams is labelling the demand and supply curves the wrong way around. You also need to remember to ABC them. That means to make them Accurate, Big and Clear.

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The Boston Matrix and product portfolio

Product portfolio analysis assesses the position of each product or brand in a firm’s portfolio to help determine the right marketing strategy for each. Perhaps the best-known and most popular model for portfolio analysis is the Boston Matrix.

The Boston Matrix categorises the products into one of four different areas, based on:

Market share – does the product have a high or low market share? Market growth – how fast is demand growing in the market?

Relative Market Share

Mark et Gro wth Rate High High Low Lo w

Question Marks Stars

Dogs Cash Cows

Stars Cash Cows Question Marks (also known as problem children) Dogs

Products with a high market share in high growth markets. Often stars need massive investment to sustain growth. Eventually, growth will slow and, assuming they keep their market share; Stars will become Cash Cows

Products with a high market share in low growth markets. These are mature, successful products with relatively little need for investment. They need to be managed for continued profit so that they continue to generate the strong cash flows that the company needs for its Stars

Products with a low market share in high growth markets. This suggests that they have potential but may need substantial investment to grow market share at the expense of larger competitors. Management has to think hard about “Question Marks” - which ones should they invest in? Which ones should they allow to fail or shrink?

Products with a low market share in low growth markets. Products with a low market share in low growth markets. Dogs may generate enough cash to break-even, but they are rarely, if ever, worth investing in. Dogs are usually sold, discontinued or closed.

Category Description

The Boston Matrix comprises of four distinct categories:

Ideally, a business would prefer products in all categories (apart from dogs) to give it a balanced portfolio of products. Exam Gold Like the product lifecycle, cash flow and marketing are intrinsically linked to the Boston Matrix. Make sure you know how and why cash flow and marketing may differ between the different categories of the Boston Matrix.

How valuable is the Boston Matrix?

• It is a useful tool for analysing product portfolio decisions

• It helps a business to categorise its products which help the business make better investment and marketing decisions, for example, spending more money on promoting and marketing stars compared to dogs

• But, it is only a snapshot of the current position • It has little or no predictive value

• Focus on market share, and market growth ignores issues such as developing a sustainable competitive advantage • Assumes market share determines profitability which is not necessarily true

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Employee welfare Customer satisfaction Social objectives

Employee welfare is an important objective, especially for those businesses who treat staff as an asset as opposed to a cost

Customer satisfaction is a measure of how satisfied customers are with the products and services of a business, for example, the quality and performance of a product or the customer service they receive

Social objectives are those objectives that are set to benefit society or the local community, for example, to reduce pollution or to produce more sustainable products

Exam Gold Social objectives can help a business to add value. Many customers choose businesses based on their social and ethical position and may be prepared to pay for a product that is from a business that they deem to be more socially responsible.

Exam Gold The 20 mark questions are often focused on whether a particular course of action will help a business achieve a specific objective. For example, whether cutting prices or improving customer service is the best way to achieve an objective of sales maximisation. When answering questions such as these, you must ensure that your analysis and recommendation is fully focused on how and why the options presented would allow the business to achieve their objective and which option you would recommend to meet the objective.

Sole trader, partnership and private limited company

The form a business takes will depend on several factors, for example:

• the owner of the business

• the product and/or service that the business offers

• the size and nature of the market

• the aims and objectives of the business

Many businesses start in one form, for example, a sole trader, and then grow and expand into a different form of business.

Unincorporated and incorporated businesses

A key distinction needs to be made between businesses formed as a company (incorporated) and those that are not. Unincorporated

• The owner is the business - no legal difference

• The owner has unlimited liability for business actions (including debts)

• Most unincorporated businesses operate as sole traders

1.5.4

FORMS OF BUSINESS

What you need to know

Sole trader, partnership and private limited company

Franchising, social enterprise, lifestyle businesses, online businesses Growth to PLC and stock market flotation

References

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